Should i sell?

um7y1h83ge06nx

Obviously I should be sitting down getting professional advice but am hoping for some initial views on here.

My wife has been putting pressure on me to sell a house that I used to live in that I now rent, we have our own jointly owned home. Her rationale is that the house is getting older and less desirable and property prices overall could plummet. She believes it better to put profits from the sale in savings accounts as a rainy day fund.

House is a semi-D built in the mid 90s in a busy suburb of Limerick. Was bought in 2006 for 282k, could possibly sell now for about 230-240k. Outstanding mortgage is about €155k on an ECB +1.25% tracker.

Before tax, mortgage repayments are approximately €600 with rental income of €1200 per month.

My gut is that we don't immediately need the cash for anything and it's not proving to be a financial burden, at least not at the moment.

Any thoughts?

antix80

I think she's right.

um7y1h83ge06nx

antix80 wrote: »

I think she's right.

Any particular reasons why?

stdidit

If you don't mind the hassle of being a landlord then I'd keep the house if it's making a profit.

Another option might be to sell and reinvest the money elsewhere - I certainly wouldn't leave it lying in a savings account doing nothing.

alias no.9

How involved do you need to be in managing the property with the current tenants? If they are well settled, integrated in the locality, paying the rent on time, keeping the place neat and tidy, etc... I'd definitely be in the do nothing camp until they choose to move on. It becomes a different decision then because there's always a risk in a change of tenants.

Based on the €600pm, €155k outstanding and ECB+1.25%APR, you're paying about €160 per month in interest, so you're gaining €440 in equity a month or a little over €5k in the next 12 months. The ECB rates won't be rising in the near future. Even after that, about half of the €160 comes back as mortgage interest tax relief so you're probably cash flow positive with with Mortgage and Tax paid from the rent.

Are there other exceptional expenses that have been coming in or are expected?

the_syco

How much of your wages do you put towards the house from your combined wage packet, or is it only from your wage packet?

Is that house only yours, or a joint purchase?

um7y1h83ge06nx

No other exceptional expenses, we can take care of the joint mortgage on our home fine.

The house is only in my name and only my money is involved in it.

I think she believes it is too much of a burden on my time, I disagree. Also she is hearing alot of panic that house prices will plummet in the west side of Limerick city due to Irish Cement.

Donald Trump

<MOD SNIP>

The_Conductor

Belle Tiny Traveler wrote: »

No other exceptional expenses, we can take care of the joint mortgage on our home fine.

The house is only in my name and only my money is involved in it.

I think she believes it is too much of a burden on my time, I disagree. Also she is hearing alot of panic that house prices will plummet in the west side of Limerick city due to Irish Cement.

You have an o/s mortgage on your current familial home- and equity in this one. If it is reaching the stage where it is going to need time and effort invested in it (aka- you've owned it for the last 14 years- have you replaced the boiler, the fixtures and fittings, the interior etc- or are these items that are going to feature on the agenda. Also- asphalt has a 12-15 year life span- if there is a balcony or an asphalt roof- it probably needs to be investigated for resealing and possibly replacing at this stage...……

You're coming up to the point in ownership- where you are going to have to invest money in the property. With the best of will in the world, and irrespective of how good your tenants are- furniture, fixtures, fittings- and the building itself- need routine upkeep and replacement- and you are coming towards the sort of timescale where you can expect things to start to need to be done in earnest.

If you can get the sort of price that you're suggesting- and you have an o/s balance on your main mortgage- I'd strongly advocate selling the investment property, putting the proceeds towards your main house- and getting out of the sector.

The regulatory regime is going to further target small scale landlords- in favour of larger landlords- and handing further rights to tenants. If your wife is worried about the amount of time you are investing in the property now- that alone would in my mind, be sufficient reason to evaluate what my options were- and unless I had some compelling reason to keep the property- I'd be looking at how I could best sell into the current market.

It is probable that the FTB scheme is going to be further reduced (as in, the thresholds will be reduced) in the budget on Tuesday. This will, in turn, have a dampening effect on secondhand property- which is trailing new property (for several reasons which we don't need to go into here).

In your position- I'd be strongly inclined to sell Property A- and pay down the mortgage on Property B (and any other debt I had). Its entirely foreseeable that there are major expenses on the imminent horizon- and however much time you're investing in the tenancy- that is only going to increase too. I'd strongly advocate selling.

Mad_maxx

Belle Tiny Traveler wrote: »

Obviously I should be sitting down getting professional advice but am hoping for some initial views on here.

My wife has been putting pressure on me to sell a house that I used to live in that I now rent, we have our own jointly owned home. Her rationale is that the house is getting older and less desirable and property prices overall could plummet. She believes it better to put profits from the sale in savings accounts as a rainy day fund.

House is a semi-D built in the mid 90s in a busy suburb of Limerick. Was bought in 2006 for 282k, could possibly sell now for about 230-240k. Outstanding mortgage is about €155k on an ECB +1.25% tracker.

Before tax, mortgage repayments are approximately €600 with rental income of €1200 per month.

My gut is that we don't immediately need the cash for anything and it's not proving to be a financial burden, at least not at the moment.

Any thoughts?

Yes, don't sell it.

Limerick is going from strength to strength and is still good value , prices have not dropped this past year despite doing so in the likes of Galway

Limerick was underestimated for too long

Get Real

If it's not providing a financial burden, don't sell.

You'll come out with around 80k after the remaining mortgage balance is paid off.

Yet currently, the mortgage is paying itself, with a bit left over. You have the potential there in later life/retirement to outright own an asset worth 200k (plus or minus) to sell for a lump sum/keep renting to supplement your pension.

Of course, markets and personal financial situations can change, and that may change my advice.

But at the moment, you don't seem to need the 80k. And I think you'd be better served having a long term retirement option/wholly owned asset, rather than "remember that 80k we got x number of years ago". When the time comes down the line, then decide what you want to do with it.

SozBbz

The_Conductor wrote: »

It is probable that the FTB scheme is going to be further reduced (as in, the thresholds will be reduced) in the budget on Tuesday. This will, in turn, have a dampening effect on secondhand property- which is trailing new property (for several reasons which we don't need to go into here).

I don't understand your logic here. If the FTB scheme thresholds are reduced -which all the pre budget kite flying suggests will be the case, reducing the threshold to homes valued below €300k, instead of €500k.

All I really read from this is that the HTB scheme will be officially dead in Dublin.

I don't think the budget will effect the OP anyway, as his house will still be in the HTB price range, assuming the €300k rumoured figure is correct.

However, back to the general point that the reduction of the HTB scheme would dampen the prices of 2nd hand homes... I don't get that.

IMO many HTB qualified buyers only look at new builds because they want to avail of the incentive. Take the incentive away, and arent those same buyers more likely to consider buying 2nd hand? Removing the HTB would actually make 2nd hand home more desirable versus new homes, especially if they have some of the traditional advantages like a larger garden or better location in a mature area.

s7ryf3925pivug

I doubt Irish Cement will cause any sudden change because it has been there ages, the tyre burning thing notwithstanding. Look at the local election results to see how many people actually care. If property prices drop it will be because of a nationwide crash imo, not something local.

It sounds like time is the issue really, not money. Why not employ a property management service to look after it?

To be totally pragmatic about it, consider if you think your money will be eventually wasted if you liquidate the house. Your wife's strong opinions about what you do with your capital now suggest strong opinions about what is done with it later. She can't spend your house.

Fian

One thing to bear in mind is that you are almost certainly in breach of the conditions of your tracker mortgage, which will include a standard clause requiring you to live in the house as your principal residence. If the bank were aware they would likely move you to a buy to let mortgage at about 5/6% interest.

Your wife may be wrong about selling, but if history proves her right you will deeply regret not listening to her, that kind of thing can be poisonous and fester. If it were me I wouldn't risk that strife by holding on to the house.

Having said that I don't agree with her assessment, rental yields are good atm, though your 6.25% yield is not stellar. But agree with her or not i wouldn't want to risk going against what my wife wanted in this scenario.

um7y1h83ge06nx

Madden Unkempt Yeast wrote: »

To be totally pragmatic about it, consider if you think your money will be eventually wasted if you liquidate the house. Your wife's strong opinions about what you do with your capital now suggest strong opinions about what is done with it later. She can't spend your house.

Ha, very true. I think she got it into her head that we are "in debt up to our eyeballs" and just generally worrying about things without having specific figures. That's the negative side of her allowing and wanting me to handle most of our joint finances.

I have been doing some sums and we are lucky that our combined LTI across both mortgages and without considering rental income is just under 2.5. That in my opinion is pretty good, a good bit under that standard 3.5 threshold banks are now implementing.

We are also currently lucky enough to be able to overpay the mortgage on our home by up to 10% per annum (we're fixed so anymore than 10% would incur charges).

The only thing she wants to do is to keep any potential sales from the rental house in a savings account. Given the very poor rates on deposits at the moment I see that as a waste.

As I said to her, the assertion that we are "in debt up to our eyeballs" is neither right or wrong, it's subjective and cannot really be defined and that makes it impossible to quantify. What I can quantify makes it look reasonable.

I think I'll just have to go through the facts and figures with her. Thanks for all the different perspectives so far. Making financial decisions can be difficult, despite all best efforts people can still make incorrect assumptions as to the future and if we all have the benefit of hindsight, it would be great!

endacl

Have you considered putting the property into a pension trust?

KyussB

Unless there's an immediate need for money, or the potential for that, in the near future (and Ireland is very likely to enter into a recession soon due to Brexit - there may be a wider global recession, too - but not as big as the previous decade) - and if you're fine with the time/effort that needs to be put into the house - and are fine with the downswing in property value through the next economic cycle - then sit pretty and keep the rent paying off the mortgage, you're not going to find anything else that will give you returns like that.

The_Conductor

KyussB wrote: »

Unless there's an immediate need for money, or the potential for that, in the near future (and Ireland is very likely to enter into a recession soon due to Brexit - there may be a wider global recession, too - but not as big as the previous decade) - and if you're fine with the time/effort that needs to be put into the house - and are fine with the downswing in property value through the next economic cycle - then sit pretty and keep the rent paying off the mortgage, you're not going to find anything else that will give you returns like that.

If he sells this- and uses the balance to knock a decent chunk out of the mortgage on the family home- he would be paying off two separate loans and reducing his overall indebtedness.

In addition- while he is satisfied with the amount of work he is putting into the tenancy- his wife isn't. Its already a bone of contention.

I'm a big fan of paying off debts- where-ever possible- and trying to use the tax system advantageously (and legally)- to best manage long term finances. However, one has to be cognisant of the fact that there is a fundamental difference between personal and investment finances- and this distention has become blurred for the OP.

Unless there is something fundamental keeping the OP from divesting of this property- his ROI is not what would be considered reasonable, esp. given the risks involved in the sector.

The_Conductor

What interest rate are you paying on the mortgage on your family home- and would the appreciation in the second property be sufficient to pay off a considerable lump from it?

Mortgage interest is up to 100% tax deductible for rental income- but you get no such deductions on your main mortgage. I think it would be nuts to put any money you get out of this sale in a savings account- however, I think it would be an excellent idea to pay down the main mortgage- even if there were a small reimbursement fee to be paid (as its on a fixed rate).

KyussB

The_Conductor wrote: »

If he sells this- and uses the balance to knock a decent chunk out of the mortgage on the family home- he would be paying off two separate loans and reducing his overall indebtedness.

In addition- while he is satisfied with the amount of work he is putting into the tenancy- his wife isn't. Its already a bone of contention.

I'm a big fan of paying off debts- where-ever possible- and trying to use the tax system advantageously (and legally)- to best manage long term finances. However, one has to be cognisant of the fact that there is a fundamental difference between personal and investment finances- and this distention has become blurred for the OP.

Unless there is something fundamental keeping the OP from divesting of this property- his ROI is not what would be considered reasonable, esp. given the risks involved in the sector.

It's already paying off the debt on its own. If there is enough of a rainy day fund, and if it's reasonable to assume that the renting can continue - there's no good reason not to continue.

If the OP has good reason to believe that the arse may fall out of the local economy, endangering the ability to rent it, to the point even that he may not be able to keep up with its mortgage - that's about the only potential reason not to keep it going.

sunnysoutheast

Given the recent direction of travel of the Regulatory regime for small landlords in Ireland my advice would be to get out if possible. It's only going to get more difficult.